Bush-Era Tax Cuts Depart From History of America War Finance

WASHINGTON, D.C., April 30, 2008—The idea of consciously and aggressively reducing federal tax revenues while simultaneously pursuing a war abroad is new to the American experience,” write Joseph J. Thorndike, Steven A. Bank, and Kirk J. Stark in a new analysis of war finance in United States history.

War and Taxes, to be released May 6 by the Urban Institute Press, chronicles the political arguments, economic conditions, and public opinions that made it possible for previous presidents and Congresses to raise taxes, sell bonds, and cut domestic spending to pay for wars. The authors contrast the tax hikes enacted to support previous military operations with the extraordinary tax cuts Americans have enjoyed during the current wars in Afghanistan and Iraq—all without overstating previous generations' enthusiasm for wartime sacrifice.

War and Taxes describes the longstanding tension between the public’s sense of patriotic duty and its reluctance to bear rising tax burdens. During World War I, for example, the United States Chamber of Commerce announced being “undismayed at the prospect of great taxes” to support the war, but still argued for heavy taxes on only the most profitable businesses. Even in World War II, often thought of as the war most energetically supported with home-front sacrifices, Congress and President Franklin Roosevelt often argued over the type and amount of tax revenue essential for fighting the war, once disagreeing so seriously that a lukewarm tax bill passed by both houses drew a sharply worded veto from the president.

Even after weighing the often-overlooked history of U.S. resistance to wartime taxation, Thorndike, Bank, and Stark find no historical precedent for the billions of dollars in tax cuts secured by President George W. Bush while the wars in Afghanistan and Iraq continue.

“Like the events of December 7, 1941, the attacks of September 11 triggered a strong ‘rally ’round the flag’ effect as Americans readied themselves for the sacrifices of war. Unlike Pearl Harbor, however, there was virtually no talk in the wake of the September 11 attacks of a need to increase taxes in order to mobilize for war,” the tax historians write.

Just as earlier leaders appealed to Americans' sense of patriotism to raise taxes, some politicians used the same tack to argue for cutting them during the wars in Afghanistan and Iraq. One commentator quoted in the book wrote in an April 2003 op-ed “by keeping tax rates too high and ‘sacrificing’ economic growth, we don’t help the war effort, we hinder it; we don’t get more revenue, we get less.”

Earlier generations may have witnessed debates over the right form and magnitude of tax increases for fighting wars abroad, but so solid a rejection of the increases, the authors conclude, is truly unprecedented in American history.

War and Taxes considers whether the absence of a military draft, political acceptance of budget deficits, or declining concerns over inflation are behind this generation’s wartime tax cuts. Whatever the political and economic conditions that make these tax cuts acceptable to lawmakers, the book’s authors are clear: “the Bush-era tax cuts … plainly constitute an extraordinary episode in the history of American war finance.”

Steven Bank is a professor of law and vice dean at the University of California, Los Angeles School of Law, where Kirk Stark is a professor of law. Joseph J. Thorndike is the director of the Tax History Project at Tax Analysts and a scholar in residence at the University of Virginia.

“Indirect taxes, however ineligible, will doubtless be cheerfully paid as war taxes, if necessary.”
– Albert Gallatin, secretary of the treasury during the War of 1812

“The annihilation of this government is the alternative [to increased taxation].”
– Rep. Thaddeus Stevens, chair of the House Ways and Means Committee during the Civil War

“I have received telegrams worded patriotically, that each and every person whom we intend to tax is willing to pay his share to carry on the war; but … they all think some other fellow ought to pay the tax.”
– Rep. William Collier, member of the House of Representatives during World War I

“It takes taxes to beat the Axis.”
– Narrator to Donald Duck in a Disney short film produced during World War II

“I think the boys in Korea would appreciate it more if we in this country were to pay our own way instead of leaving it for them to pay when they get back.”
– Speaker of the House Sam Rayburn during the Korean War

A “tax increase of ten times the size recommended by the president would still not begin to equate the sacrifice of our courageous young men fighting and dying in the swamps and jungles of Vietnam with Americans who are enjoying income and prosperity greater than they have ever known.”
– Sen. Russell Long, chairman of the Senate Finance Committee during the Vietnam War

“Nothing is more important in the face of war than cutting taxes.”
– House Majority Leader Tom DeLay, March 2003

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